Some Personal Income Tax Effects of Patient Protection and Affordable Care Act (also referred to as ACA or Health Care)
For 2014 Tax Year
For 2014 Tax Year
The primary tax related effects of the ACA will begin to be felt by the taxpayers beginning with the 2014 tax year (in 2015). In simple terms, through the Internal Revenue Service (IRS), a reconciliation will be made via the personal income taxes filed as to whether the taxpayer owes money to the government or has an additional refund from the government based on the requirements of the ACA. For this purposes, IRS will obtain applicable information return copies and registration information from other sources, in addition to the taxpayer's declaration. Taxpayer will also receive copies of the same information returns, similar to, for instance W-2 forms, as discussed below.
From the tax standpoint, certain important new items are introduced. The law requires that all citizens, with certain allowances (exemptions per ACA), must have minimum essential (health insurance ) coverage to meet the individual shared responsibility created by ACA. This responsibility applies to individuals of all ages.
For most individual taxpayers, who had compliant health care coverage for themselves and others that are shown as exemptions (in tax filing terms) on their tax returns, the filing requirement will be no more than checking a box.
If the shared responsibility provision is not fulfilled, then a Shared Responsibility Payment will incur. The amount of this payment for 2014, in summary, is the greater of:
- 1 percent of your household income that is above the tax return threshold for your filing status where the maximum penalty is the national average premium for a bronze plan, or
- Your family’s flat dollar amount, which is $95 per adult and $47.50 per child, limited to a maximum of $285.
These amounts may vary for each year. If you don’t have coverage in 2015, you’ll pay the higher of these two amounts:
- 2% of your yearly household income. (Only the amount of income above the tax filing threshold, about $10,000 for an individual, is used to calculate the penalty.) The maximum penalty is the national average premium for a bronze plan
- $325 per person for the year ($162.50 per child under 18). The maximum penalty per family using this method is $975.
For more comprehensive information, please refer to the Proposed Regulations regarding this topic.
You may be exempt from making this (penalty) payment. If this is the case, you will be required to attach the IRS Form 8965 to declare your exemptions and/or to determine your penalty. Certain exemptions may be granted to you by the insurance Exchanges (or the Marketplace). If this is the case, there will be an Exemption Certificate Number (ECN) issued, which must be entered in the Form 8965. If you had applied for such an exemption from your Exchange but not received it by the time you are filing a return, you can write in “Applied”. The IRS also receives information from the Exchanges or Marketplace and will confirm the information you provide. Instructions for Form 8965 provides additional information in this regard.
If you will seek an exemption, based on Marketplace coverage being considered unaffordable to you, you will need to know the premium for the lowest cost Bronze plan you could have enrolled in for 2014 to complete the IRS Form 8965.
There are also additional taxes that are imposed on individuals such those on net investment income at the rate of 3.8% and Additional Medicare Tax at the rate of 0.9%.
There are penalties for business that have 50 or more full-time equivalent employees. The penalty requirement was delayed and will not be effective for 2014.
On the other hand, for certain taxpayers who obtain their qualified health insurance plan through the Exchanges, a credit is allowed as Premium Tax Credit (PTC). This credit amount may have been paid on behalf of the taxpayer, during the year, as Advance Payment of the Premium Tax Credit (APTC). The Exchanges are required to will report the payments made on behalf of the covered individuals in a given household. The reporting will be made via an information return, Form 1095-A, Health Insurance Marketplace Statement. This form and its instructions are available on the IRS website.
IRS Form 8962, Premium Tax Credit, will determine the amount of PTC or the amount of the repayment of the advanced payment of the PTC. The PTS will be calculated, by first determining the amount of the assistance based on Second Lowest Cost Silver Plan (SLCSP) and the contribution amount, then comparing the resulting assistance amount to premium paid amount per the issued Form 1099-A, choosing the lower amount to arrive at the PTC allowed. Form 1095-A will also provide the amount of the advance payment of the PTC. Comparing these two amounts, PTC allowed and the advance payment of the PTC will determine if there exists a net PTC or an excess payment of PTC that needs to be repaid.
There are a great deal of resources to view. Some, easy to read, valuable ones may be HelthCare.gov in general, as well as providing an extensive glossary of terms. From the tax perspective, IRS offers well organized, extensive content under “Affordable Care Act (ACA) Tax Provisions” on irs.gov website. Regarding the state Exchanges, a good reference may be the “State Health Insurance Marketplaces”on the CMS.gov website.
The primary tax related effects of the ACA will begin to be felt by the taxpayers beginning with the 2014 tax year (in 2015). In simple terms, through the IRS, a reconciliation will be made via the personal income taxes filed as to whether the taxpayer owes money to the government or has an additional refund from the government based on the requirements of the ACA. For this purposes, IRS will obtain applicable information return copies and registration information from other sources, in addition to the taxpayer's declaration. Taxpayer will also receive copies of the same information returns, similar to, for instance W-2 forms, as discussed below.
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